Chapter content - Free access

Making Construction Projects

1.1 What are the standard types of construction contract in your jurisdiction? Do you have contracts which place both design and construction obligations upon contractors? If so, please describe the types of contract. Please also describe any forms of design-only contract common in your jurisdiction. Do you have any arrangement known as management contracting, with one main managing contractor and with the construction work done by a series of package contractors? (NB For ease of reference throughout the chapter, we refer to "construction contracts" as an abbreviation for construction and engineering contracts.)

A contractor-designed (or “design-and-build”) project is one where a contractor is responsible (subject to the terms of contract) for the design, management and delivery of the project, on time and within budget, taking into account whole-life costs and fitness for purpose in accordance with a pre-defined output specification provided by the client.

An employer-designed (or “traditional”) project is one where the contractor is responsible for providing the construction services required to deliver a facility designed by (or on behalf of) the client.

Depending on the nature of the construction project, a management contracting arrangement is acceptable if it will promote the overall objective of the project.

1.2 Are there either any legally essential qualities needed to create a legally binding contract (e.g. in common law jurisdictions, offer, acceptance, consideration and intention to create legal relations), or any specific requirements which need to be included in a construction contract (e.g. provision for adjudication or any need for the contract to be evidenced in writing)?

The essentials of a valid contract are applicable in this instance. All agreements are contracts if they are made by the free consent of the parties, competent to contract, for lawful consideration and with a lawful object.

The following are the essential elements of a valid contract:

Offer and acceptance.

Lawful consideration.

Capacity of the parties.

Intention to create a legal relationship.

Certainty of meaning.

It is instructive to note that mechanisms of dispute resolution must be contained in such contracts, i.e. arbitration as well as the choice of law that will govern the contract.

Contracts of this nature are always evidenced in writing.

1.3 In your jurisdiction please identify whether there is a concept of what is known as a "letter of intent", in which an employer can give either a legally binding or non-legally binding indication of willingness either to enter into a contract later or to commit itself to meet certain costs to be incurred by the contractor whether or not a full contract is ever concluded.

Yes, the concept of “letter of intent” is quite common in Nigeria.

1.4 Are there any statutory or standard types of insurance which it would be commonplace or compulsory to have in place when carrying out construction work? For example, is there employer's liability insurance for contractors in respect of death and personal injury, or is there a requirement for the contractor to have contractors’ all-risk insurance?

Contractors are generally required to take out construction liability insurance before commencement of projects; this is to protect contractors against injuries, accidents or property damages suffered on the job.

Other forms of insurance include:

liability insurance;

pollution insurance; and

contractors’ all-risk insurance.

1.5 Are there any statutory requirements in relation to construction contracts in terms of: (a) general requirements; (b) labour (i.e. the legal status of those working on site as employees or as self-employed sub-contractors); (c) tax (payment of income tax of employees); or (d) health and safety?

There are applicable statutory requirements in this instance; the Employee Compensation Act (ECA) makes comprehensive provisions for the compensation that will accrue to an employee or the employee’s estate in the event of death, injury, illness or any disability arising out of or in the course of the employee’s contract or employment (this relates to the health and safety of the employee). The Personal Income Tax Amendment Act (PITAM) provides for the payment of income taxes of employees, while the Labour Act defines the legal status and capacity of employees and/or contractors.

1.6 Is the employer legally permitted to retain part of the purchase price for the works as a retention to be released either in whole or in part when: (a) the works are substantially complete; and/or (b) any agreed defects liability is complete?

The contractor’s ability to secure its payment is largely dependent on the nature of the contract. The actual nature of the “defects liability period” is stated in the construction contract document agreement and is usually of six months. During this period, the occurrence of defects is at the contractor’s own liability and the contractor shall be called upon to return to site to rectify the defects as necessary.

1.7 Is it permissible/common for there to be performance bonds (provided by banks and others) to guarantee performance, and/or company guarantees provided to guarantee the performance of subsidiary companies? Are there any restrictions on the nature of such bonds and guarantees?

The common practice is that a performance bond of 5–10 per cent of the contract’s value is pledged as security for the general performance of the contractor. It is permissible to have either performance bonds or company guarantee bonds.

1.8 Is it possible and/or usual for contractors to have retention of title rights in relation to goods and supplies used in the works? Is it permissible for contractors to claim that until they have been paid they retain title and the right to remove goods and materials supplied from the site?

Yes; and contractors also have the right to remove goods and materials from the site.

Supervising Construction Contracts

2.1 Is it common for construction contracts to be supervised on behalf of the employer by a third party? Does any such third party (e.g. an engineer or architect) have a duty to act impartially between contractor and employer? Is that duty absolute or is it only one which exists in certain situations? If so, please identify when the architect/engineer must act impartially.

Yes, the employer reserves the right to appoint a third party in a supervisory capacity. In certain instances where actions by either the contractor or employer would be in breach of relevant laws, the “third party” must act impartially.

2.2 Are employers entitled to provide in the contract that they will pay the contractor when they, the employer, have themselves been paid; i.e. can the employer include in the contract what is known as a "pay when paid" clause?

Yes, they are.

2.3 Are the parties permitted to agree in advance a fixed sum (known as liquidated damages) which will be paid by the contractor to the employer in the event of particular breaches, e.g. liquidated damages for late completion? If such arrangements are permitted, are there any restrictions on what can be agreed? E.g. does the sum to be paid have to be a genuine pre-estimate of loss, or can the contractor be bound to pay a sum which is wholly unrelated to the amount of financial loss suffered?

Common Issues on Construction Contracts

3.1 Is the employer entitled to vary the works to be done under the contract? Is there any limit on that right?

Yes, the work can be varied, from the point of design changes required by law, to the extent of alternative designs suggested by the contractor.

3.2 Can work be omitted from the contract? If it is omitted, can the employer do it himself or get a third party to do it?

Yes, work can be omitted and either the employer or a third party can do it.

3.3 Are there terms which will/can be implied into a construction contract?

Yes, there are.

3.4 If the contractor is delayed by two events, one the fault of the contractor and one the fault or risk of his employer, is the contractor entitled to: (a) an extension of time; or (b) the costs occasioned by that concurrent delay?

An extension of time or cost occasioned by delay will be determined by the terms and conditions contained in the construction contract.

3.5 If the contractor has allowed in his programme a period of time (known as the float) to allow for his own delays but the employer uses up that period by, for example, a variation, is the contractor subsequently entitled to an extension of time if he is then delayed after this float is used up?

Yes, the contractor will be entitled to an extension of time; this is however subject to the terms and conditions contained in the construction contract.

3.6 Is there a limit in time beyond which the parties to a construction contract may no longer bring claims against each other? How long is that period and from what date does time start to run?

The statutory limitation period is six years, where a government parastatal or statutory body is being sued; a pre-action notice will be served as required by some government parastatals. Other preconditions will be dependent on the parties involved in the suit. The limitation period will run from the date when the contract was breached.

3.7 Who normally bears the risk of unforeseen ground conditions?

The contractor usually bears the risk.

3.8 Who usually bears the risk of a change in law affecting the completion of the works?

The contractor must comply with all applicable legislation. A failure to comply could give rise to termination for contractor default. The cost of complying with legislation which is current or foreseen at the time of the contract should be built into the price the contractor bids to provide the service. Nevertheless, the contractor may not, for example, be capable of including in the price specific costs arising from changes in law which are not foreseeable prior to contract signature.

3.9 Who usually owns the intellectual property in relation to the design and operation of the property?

The architect owns the rights to the design of the property except if otherwise agreed.

3.10 Is the contractor ever entitled to suspend works?

Yes, where there is default of payment. However in the event the contractor’s right to complete the work under the terms of this contract is terminated, the project company may complete the work or have it completed by others.

3.11 On what grounds can a contract be terminated? Are there any grounds which automatically/or usually entitle the innocent party to terminate the contract? Do those termination rights need to be set out expressly?

The grounds for termination of a contract are as follows:

Duress/undue influence.

Mistake.

Frustration/subsequent impossibility.

Renunciation/refusal to perform.

Illegality/running contrary to public policy.

Breach of condition.

Where a party to a contract exhibits behaviour which suggests that they are unwilling to perform their contractual obligations, the innocent party has the right to terminate the contract due to repudiation.

Yes, it is advisable that the termination rights are set out in the contract.

Delays might result in damages under, or termination of, other project contracts and increased debt service costs.

3.12 Is the concept of force majeure or frustration known in your jurisdiction? What remedy does this give the injured party? Is it usual/possible to argue successfully that a contract which has become uneconomic is grounds for a claim for force majeure?

Yes, force majeure laws are generally enforceable in Nigeria. An uneconomic contract is not a valid ground for force majeure. If an event of force majeure occurs, the party injured by the other’s inability to perform may elect one of the following remedies: (a) to terminate this agreement in whole or in part; or (b) to suspend the agreement, in whole or part, for the duration of the force majeure circumstances. The party experiencing the force majeure circumstances shall cooperate with and assist the injured party in all reasonable ways to minimise the impact of force majeure on the injured party, which may include locating and arranging substitute services if necessary.

3.13 Are parties which are not parties to the contract entitled to claim the benefit of any contract right which is made for their benefit? E.g. is the second or subsequent owner of a building able to claim against the original contracts in relation to defects in the building?

This provision is governed by the contract itself.

3.14 Can one party (P1) to a construction contract which owes money to the other (P2) set off against the sums due to P2 the sums P2 owes to P1? Are there any limits on the rights of set-off?

This provision is governed by the contract itself.

3.15 Do parties to construction contracts owe a duty of care to each other either in contract or under any other legal doctrine?

Contractors will be protected by the principles of privity of contract. However, in Nigeria there are instances where the contractor is also the developer of the property and could therefore become liable to third party claims in that capacity. It is also important to note that negligence will always defeat any contractual protection against acts, errors and omissions under the general law of contract and tort.

3.16 Where the terms of a construction contract are ambiguous are there rules which will settle how that ambiguity is interpreted?

The contra proferentem rule is usually applied. This is a doctrine of contractual interpretation which provides that where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording.

3.17 Are there any terms in a construction contract which are unenforceable?

No, except where the terms are illegal.

3.18 Where the construction contract involves an element of design and/or the contract is one for design only, are the designer’s obligations absolute or are there limits on the extent of his liability? In particular, does the designer have to give an absolute guarantee in respect of his work?

Dispute Resolution

The Constitution guarantees the rights of persons to a fair hearing within a reasonable time by a court or other tribunal established by law and constituted in such a manner as to secure its independence and impartiality. Disputes are generally resolved in a competent court of law.

4.2 Do you have adjudication processes in your jurisdiction? If so, please describe the general procedures.

Many states in the Nigerian federation have reviewed the civil procedure rules applicable in their high courts along the lines of the review carried out in the High Court of Lagos State (Civil Procedure).

New rules were enacted in 2004. Specifically, these aim at discouraging frivolous litigation and expediting dispute resolution by means of several novel provisions.

Please find below, a summary of the steps to be taken in a civil action in Lagos state, the commercial centre of Nigeria:

The claimant prepares a statement of claim together with a list of documentary evidence, a list of witnesses, and sworn written statements.

The defendant files and serves a statement of defence together with a list of documentary evidence, a list of witnesses, and sworn written statements, within 42 days after service of the statement of claim.

The claimant serves a reply to the statement of defence (optional) within 14 days.

After issues have been joined and pleadings have been settled, there is a case management conference, where the issues are narrowed down, admissions are made and judgment is given on the basis of admissions, discoveries, interrogatories and relevant documents exchanged.

After the case management conference the case is set down for trial.

The trial takes place one to 12 months after the case management conference.

At the conclusion of the trial, the court must give its judgment within a maximum period of 90 days.

Unsuccessful parties may appeal to the Court of Appeal within three months of a final judgment and 14 days of an interlocutory decision.

4.3 Do your construction contracts commonly have arbitration clauses? If so, please explain how arbitration works in your jurisdiction.

Yes, where a dispute arises, the disputants appoint arbitrator(s) to hear their evidence and decide the dispute for them. Presently, arbitration in Nigeria is governed by the Arbitration and Conciliation Act and the A13 Laws of the Federation of Nigeria 2004, which regulate arbitration practice and procedure in Nigeria.

The key points to note on arbitration in Nigeria are as follows:

Parties decide whether one arbitrator is appointed or three arbitrators; this usually depends on what is in dispute.

Parties adopt the adversarial system, wherein each party states its case and adheres to evidence while the opposing party cross-examines and the tribunal decides according to evidence and law.

The law of the country is usually applied except where it is an international arbitration.

The tribunal also decides the language of arbitration subject to the agreement of the parties.

The preliminary meeting is an important procedure in expediting the arbitral process. It is usually the first meeting of the tribunal and parties to determine matters to be addressed in the course of the proceedings.

The matters for consideration are:

pleadings or statement of case;

form of trial, discovery, method of taking and recovering evidence; and

expert witnesses.

The hearing is usually conducted orally by way of calling witnesses or vide documents only.

(The above procedures are usually adopted to expedite the arbitral procedure.)

Consideration of Award:after taking the evidence and arguments of the parties/counsel, the parties/counsel drop out while the arbitrators withdraw into meetings amongst themselves to consider the claims, evidence and defence as well as all the laws involved.

Award: an award is a legal document and must contain enough information to enable the court, if necessary, to enforce it without further enquiry and for it to serve the purpose of res judicata. The parties may, on their own, amicably agree that a particular claim or issue or an entire dispute should fail or succeed. An award based on such agreement is referred to as an “Agreed Award”.

4.4 Where the contract provides for international arbitration do your jurisdiction's courts recognise and enforce international arbitration awards? Please advise of any obstacles to enforcement.

Yes, The enforcement of both domestic arbitral awards and foreign arbitral awards is generally governed by the Arbitration and Conciliation Act of 1988 (ACA). The law is modelled after the United Nations Commission on International Trade Law (UNCITRAL) Model law and its second schedule is based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

The Foreign Judgments (Reciprocal Enforcement) Act 66 makes provision for the enforcement in Nigeria of judgments given in foreign countries which accord reciprocal treatment to judgment(s) given in Nigeria, for facilitating the enforcement in foreign countries of judgments given in Nigeria.

Listed below are the obstacles that may be faced in enforcing an award.

Time limit on recognition and enforcement

The availability of rights to the party seeking recognition and enforcement can and will be significantly hindered by the operation of time limitation to such an application.

There are two types of time limitation that are applicable to arbitration: contractual and statutory time limits. The parties may agree in their arbitration agreement what time limitations operate to commence court proceedings or to enforce arbitral awards where a party does not voluntarily comply. In such contractual arrangements, the Arbitration and Conciliation Act should be resorted to.

Grounds for the setting aside of an arbitral award

The attitude of the court to the setting aside of arbitral awards can be summarised in the observation made in Clement C. Ebokan v Ekwernibe, 307 Ogundare, Justice of the Court of Appeal, which stated: “I would observe that we must not be over ready to set aside awards where parties have agreed to abide by the decision of a tribunal of their own selection, unless we see that there has been something radically wrong and vicious in the proceedings.”

Setting aside of foreign and international awards

The rules applicable to the setting aside of an international arbitral award were modelled after the Model law, and the mechanical reproduction of the provision under the Arbitration and Conciliation Act may hinder international arbitration in Nigeria.

Section 48 of the Arbitration and Conciliation Act relates to international awards and includes foreign awards that were made outside Nigeria, for example an arbitration:

“[t]he court may set aside an arbitral award-(a) If the party making the application furnishes proof-

(i) that a party to the arbitration agreement was under some incapacity, (ii) That the arbitration agreement is not valid under the law which the parties have indicated should be applied, or failing such indication, that the arbitration agreement is not valid under the laws of Nigeria, (iii) That he was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise not able to present his case, or (iv) That the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or (v) That the award contains decisions on matters which are beyond the scope of submission to arbitration, so however that if decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the award which contains decision on matters not submitted to arbitration may be set aside, or (vi) That the composition of the arbitral tribunal, or the arbitral procedure, was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or (vii) Where there is no agreement between the parties under subparagraph (vi) of this paragraph, that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with this Act; or

(b) if the court finds- (i) that the subject-matter of the dispute is not capable of settlement by arbitration under laws of Nigeria; or (ii) that the award is against public policy of Nigeria.”

4.5 Where the contract provides for court proceedings in a foreign country, will the judgment of that foreign court be upheld and enforced in your jurisdiction?

Yes, it will.

4.6 Where a contract provides for court proceedings in your jurisdiction, please outline the process adopted, any rights of appeal and a general assessment of how long proceedings are likely to take to reduce: (a) a decision by the court of first jurisdiction; and (b) a decision by the final court of appeal.

The following is a summary of steps to be taken in a civil action in Lagos state, the commercial centre of Nigeria:

The claimant prepares a statement of claim together with a list of documentary evidence, list of witnesses and sworn written statements.

The defendant files and serves a statement of defence together with a list of documentary evidence, list of witnesses and sworn written statements within 42 days after service of the statement of claim.

The claimant serves a reply to the statement of defence (optional) within 14 days.

After issues have been joined and pleadings have been settled, there is a case management conference, where the issues are narrowed down, admissions are made and judgment given on the basis of admissions, discoveries, interrogatories and relevant documents exchanged.

After the case management conference the case is set down for trial.

Trial takes place one to 12 months after the case management conference.

At the conclusion of the trial, the court must give its judgment within a maximum period of 90 days.

Unsuccessful parties may appeal to the Court of Appeal within three months of a final judgment and 14 days of an interlocutory decision.

There is no general right of appeal. A party cannot appeal against the decision of any court unless there is a statute creating such right of appeal. In Nigeria, the right of a litigant to appeal, the jurisdiction of the appellate court to entertain such appeal and the procedure to be followed are governed by the Constitution and other statutes (including subsidiary legislations such as rules of courts).

The main appellate courts in Nigeria are the Court of Appeal and the Supreme Court.

Appeal as of right to the Court of Appeal

According to S.240 of the 1999 Constitution, the Court of Appeal has exclusive jurisdiction to hear appeals from the High Courts, State and Federal, as well as from the Sharia and Customary Courts of Appeal. Such appeal may be as of right or with leave.

S.241 (1) sets out the various instances where an appeal from the High Court to the Court of Appeal can be as of right.

Right of appeal to Supreme Court

An appeal to the Supreme Court may be as of right or with leave. S.233 (2) of the Constitution provides that appeal shall lie as of right from the Court of Appeal to the Supreme Court.

Time within which to appeal

According to S27(a) of the Supreme Court Act, the periods prescribed for the giving of notice of appeal or notice of application for leave to appeal are:

(a) 14 days, where the appeal is against an interlocutory decision; and

(b) three months, where the appeal is against a final decision.

Therefore, in determining the period appeals may last from the High Court to the Supreme Court, it may take three to five years depending on the nature of the dispute.